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Finance Ministry’s Economic Report for May: ‘Recovery moderated by 2nd Covid wave hitting rural areas’

The report stressed that an accelerated vaccination drive is imperative to avoid or lower the ferocity of subsequent waves.

The share of debt from institutional credit agencies in total outstanding debt in rural India is 66 per cent as compared to 87 per cent in urban India

Rapid vaccination and front-loading of the fiscal measures planned in the Union Budget are key to invigorating the investment and consumption cycle in the coming quarters, the Finance Ministry said on Wednesday in its Monthly Economic Report for May. It said the momentum of economic recovery seen last fiscal year has been “moderated by the ravaging second wave of Covid-19” that also entered rural India.

The report stressed that an accelerated vaccination drive is imperative to avoid or lower the ferocity of subsequent waves.

“As we cautiously recuperate from the second wave, rapid vaccination and frontloading of the fiscal measures planned in the Union Budget hold key to invigorating the investment, and thereby consumption, cycle in the coming quarters. As seen in Q4FY2020-21, where growth in capex generated positive spillovers for consumption, including in the contact-sensitive sectors, these steps would facilitate recovery post the second wave,” the Ministry said.

Before the second wave of the Covid-19 hit the country, India’s gross domestic product (GDP) grew 1.6 per cent in the fourth quarter (January-March) of 2020-21. For the full financial year 2020-21, however, the GDP contracted 7.3 per cent — a record low.

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Quickening the pace and coverage of vaccination is critical to help India heal and regain the momentum of economic recovery, it noted.

“This momentum of economic recovery has, however, been moderated by the ravaging second wave of Covid. Unlike the first wave, the effect of the second wave has been asynchronous in its onset across states and wider in its spread as the second wave also entered the rural hinterland. This necessitated a differentiated, state-level policy response in close coordination with the Central Government for rapid rebooting of health infrastructure,” it said.

A continuous decline in the 7-day average of active cases since 13th May 2021 and the 7-day average of daily new cases after 8th May marked the declining phase of the second wave, but the speed of vaccination needs to accelerate.


“…the world’s largest vaccination drive is underway in India with 23.9 crore doses administered as on date. To avoid or lower the ferocity of subsequent waves, an accelerated vaccination drive is imperative. Vaccinating to achieve herd immunity (75-80 per cent of the population) will boost consumer and producer confidence and reinvigorate the engines of economic growth,” it argued.

Challenges pertaining to vaccine supply, vaccine hesitancy, operational aspects to achieve high daily coverage and widespread reach must be anticipated and planned for in advance. The report noted that while agriculture sector is showing good prospects, high frequency indicators indicate slackening.

Agriculture sector continues to offer comfortable prospects amidst a normal monsoon forecast, smooth food procurement and distribution, and MGNREGA employment.


However, sequential slackening was observed in eight core industrial output, PMI manufacturing, steel consumption, auto sales, tractor sales, petroleum products consumption, rail freight, port and air traffic, PMI services, highway toll collections, GST collections and UPI transactions, it said.

After declining during the second wave. high frequency indicators such as power consumption, E-way bills and foreign portfolio investment (FPI) flows witnessed uptick in the second half of May 2021.

First published on: 10-06-2021 at 03:20:40 am
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